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Published September 27, 2011, 02:32 PM

Congress pushes for farm program fixes

WASHINGTON — The pressure is mounting in the nation’s capital to rewrite at least part of the farm bill this year as Congress considers a huge piece of legislation to create jobs and reduce the deficit.

By: Jerry Hagstrom, Special to Agweek

WASHINGTON — The pressure is mounting in the nation’s capital to rewrite at least part of the farm bill this year as Congress considers a huge piece of legislation to create jobs and reduce the deficit.

On Sept. 19, President Obama proposed the continuation of disaster aid programs that expire Sept. 30 and $33 billion in farm program cuts over 10 years by eliminating the direct payments program and reducing the budget for crop insurance and conservation. A day later, Senate Budget Committee Chairman Kent Conrad, D-N.D., said it would be better for the joint committee on deficit reduction to include his proposal to create a new farm program by merging the countercyclical subsidies, the average crop revenue election program known as ACRE and disaster aid programs.

Whether there is any movement on farm programs this fall depends on whether the 12-member supercommittee composed of an equal number of Democrats and Republicans from both houses can come up with a proposal to cut the deficit by $1.5 trillion over 10 years that the House and the Senate can pass and President Obama will agree to sign. If no package passes Congress by Dec. 23, a program of automatic cuts to domestic and military spending totaling $1.2 trillion over 10 years will go into effect in 2013.

Obama: Extend

disaster programs

Disaster aid programs for crop, forage, livestock, tree, honey and farm-raised fish producers expire on Sept. 30, but Obama said those programs should continue, particularly in light of the many disasters around the country.

But he also noted that the farm economy has been prosperous in recent years and proposed that the direct payments program be eliminated. Direct payments cost the government $4.8 billion per year, but the cost savings would be only $3 billion per year because the administration anticipates that many farmers would sign up for the ACRE program if they lose their direct payments.

Obama also said that even though Congress and the administration have cut payments to crop insurance companies, the government could save another $8.3 billion over 10 years by reducing crop insurance company profits and other payments and lowering the subsidy that the government provides to producers who get more than a 50 percent subsidy on their premiums by two basis points. Obama proposed to save another $2 billion over 10 years by cutting conservation programs, but that money is likely to come from savings to the Conservation Reserve Program, which idles land for environmental improvement and wildlife habitat. Participation in that program has been going down because commodity prices are high and landowners are less interested in getting rent from the government rather than keeping their land in production.

Many members of Congress and lobbyists, particularly those in the crop insurance industry, said the cuts to agriculture were too deep.

Conrad, who has been working on a farm bill proposal for several months, told Agweek that, while the agriculture economy is strong, the agriculture budget is “going to have to provide savings.” But he added that agriculture’s contribution should be “savings that are attached to policy that makes sense so you have an entire package that can hold together that can be implemented.”

Conrad noted that the agriculture committee has until Oct. 14 to make recommendations to the supercommittee and said he thought the committee should take up his bill and recommend it.

Agriculture Secretary Tom Vilsack also said recently that the disaster aid programs that expire Sept. 30 should be extended without a gap, and Conrad said he agreed. Vilsack told reporters that he did not understand how he could tell farmers that if they had a disaster before Oct. 1 that they would get benefits, but that after Oct. 1, there would be no aid.

Conrad praised Obama for including disaster aid in the jobs and deficit reduction package that the White House released Sept. 19, but said Obama’s proposed cut was too big and that it would be better to incorporate his proposal into the deficit reduction bill.

Combining programs?

Combining several programs “will save money, be simpler to administer and pay significant economic dividends for taxpayers,” Conrad added.

Conrad has not released his proposal, but said he is now “vetting” it with both colleagues and farm leaders and getting “a positive reaction.” He said he does not have an “official” score for the proposal.

“Most people understand in this budget environment that agriculture has to be part of the solution, but the cuts should not be disproportionate,” Conrad said. “We have to keep in mind where we stand on the world stage. We have to keep in mind what are the essential elements that would allow us to be competitive in the world.”

Senate Agriculture Committee Chairman Debbie Stabenow, D-Mich., has not commented directly on Conrad’s plan although she previously has said that she appreciated the effort he was making in developing the proposal. Of Obama’s proposal, Stabenow said any decisions on cuts should be made by the agriculture committee and that farmers need both crop insurance and conservation programs.

House Agriculture Committee Chairman Frank Lucas, R-Okla., and Senate Agriculture ranking member Pat Roberts, R-Kan., were critical of the Obama proposal in a joint statement.

“The president’s policy priorities reveal a lack of knowledge of production agriculture and fail to recognize how wholesale changes to farm policy would impact the people who feed us,” the statement said.

“For example, cutting $8 billion from the crop insurance program puts the entire program at risk. We have heard again and again from producers that crop insurance is the best risk management tool available. In jeopardizing this program, the president turns a deaf ear to America’s farmers,” the statement said. “Meanwhile, SURE (the biggest disaster program) has not worked as intended for most crops, but the president proposes extending it,” the statement from Lucas and Roberts said. “The president only proposes a $2 billion cut, roughly 3 percent, to conservation despite his claim that conservation spending has increased 500 percent through the years. And, the president does nothing to address waste, fraud, abuse, and other integrity issues within nutrition programs, which account for 80 percent of USDA spending. Ultimately, cuts to agriculture must reflect its diversity across the country, respect the challenges producers face, and preserve the tools necessary for food production.”

Lucas has said, however, that he does not expect the supercommittee to cut food stamps and Roberts championed saving the program in the 1996 farm bill. Lobbyists say continuation of food stamps is vital to getting urban votes for the farm bill.

Concerning cuts

National Farmers Union President Roger Johnson, a former North Dakota agriculture commissioner, said he was pleased by Obama’s proposal to extend disaster aid, but “surprised and a little disappointed” at the depth of the cuts to farm programs. Although Farmers Union never has favored direct payments, Johnson has noted that its members in Southern states like the program. He said he found the crop insurance cuts “troubling.”

Ferd Hoefner, a lobbyist with the National Sustainable Agriculture Coalition, said he did not consider the $2 billion cut in conservation to be of much importance because the administration has proposed cuts to conservation programs each year. He said he wondered if the administration wants the $2 billion cut in addition to the cuts it has proposed in the appropriations process.

Hoefner, who contends that farm subsidies to large producers make it harder for small producers to stay in business, said that even though the administration proposed cutting direct payments, he was disappointed that the president did not fulfill a campaign promise to strive hard to impose stricter payment limits on farmers.

The cuts to crop insurance generated the strongest criticism. The White House noted that “crop insurance is a foundation of our farm safety net” and that 83 percent of majority commodity crop acres now are enrolled in the program. But the administration also noted that the cost of the program has risen to approximately $8 billion per year, with $2.3 billion going to private insurance companies to administer and underwrite the program and $5.7 billion going in premium subsidies to farmers.

The administration noted that the companies had agreed to accept $6 billion in cuts to administrative expenses and underwriting gains over 10 years in a renegotiation of the standard insurance agreement in 2010, but said, “there are additional opportunities for streamlining of the administrative costs of the program.”

A USDA-commissioned study found that when compared with other private companies, crop insurance companies’ rate of return on investment should be about 12 percent, the administration noted, but that it currently is expected to be 14 percent. The administration proposed lowering the rate of return to 12 percent, saving $2 billion over 10 years.

It also proposed capping the administrative expenses at $900 million over 10 years, saving $3.7 billion; slightly lowering the reimbursement for catastrophic coverage, saving $600 million, and shaving two basis points off the premiums on which the government pays more than 50 percent of the cost of the premium subsidy, saving $2 billion. Total savings from crop insurance would be $8.3 billion, the administration says.

Tom Zacharias, president of National Crop Insurance Services, a research group supporting the companies, spoke out against the proposal.

“The plan is devastating to those in agriculture, particularly in a year that has seen extremely volatile commodity prices and weather events — from droughts in Texas and Oklahoma to floods in the Northeast and Midwest,” Zacharias said. “The White House calls for further streamlining of the Federal Crop Insurance Program, which has already contributed more than $4 billion towards deficit reduction, and $12 billion overall in spending reductions since 2008. Congress needs to evaluate the economic impact of weakening the primary safety net on which farmers and our rural economy can rely.”

A coalition of crop industry companies and agents also said, “On behalf of crop insurance companies, agents and producers who have stated that federal crop insurance is the cornerstone of U.S. farm policy, we strongly oppose the administration’s reckless cuts to crop insurance. The administration’s proposal does not ‘modernize’ crop insurance or implement it ‘more efficiently,’ as it purports to do. To be clear, the administration proposal would end federal crop insurance. Given the bad economy, high unemployment, recent deep cuts and widespread natural disasters, the administration proposal is divorced from reality and is an attack on rural America.”

Congress and the administration made those cuts partly because farmers concluded that the companies and crop insurance agents were making a lot of money as commodity prices went up and crop insurance premiums and commissions followed.

National Corn Growers Association President Bart Schot’s statement was an indication that farmers still are more concerned about cuts to premium subsidies than cuts to the companies and agents.

“While NCGA agrees the fiscal challenges before us require even greater efficiency in the delivery of farm safety net programs, we are deeply concerned by proposals that would directly undermine a farmer’s ability to purchase adequate insurance coverage at a time of heightened volatility in commodity markets,” Schott said.

The prospects for the president’s overall proposal and the agriculture cuts are unclear on Capitol Hill. One lobbyist said that the size of the agriculture cuts ultimately may depend on whether the supercommittee decides to trim the deficit by the Obama administration’s proposed $3 trillion, or sticks to the $1.5 trillion, or cannot reach agreement and allows a sequestration program of $1.2 trillion in deficit reduction to take place over 10 years.

If the total amount to be saved is only $1.2 trillion to $1.5 trillion — 40 to 50 percent of the $3 trillion agriculture’s “fair share” would drop to $13 billion to $15 billion, much smaller than the $33 billion the administration has proposed, the lobbyist said.

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